Interest rate decision sparks renewed royal commission battle – August 2016
With Labor threatening to pursue its proposal for a banking royal commission in the new Parliament, the Coalition has produced an alternative.
Prime Minister Malcolm Turnbull has announced that the major banks will be called to appear at least annually before the House of Representatives Standing Committee on Economics to enable the committee to report jointly to the Treasurer and the Parliament on Australia’s banking and financial system.
Mr Turnbull’s move followed widespread public criticism and renewed Labor calls for a royal commission after the four major banks (and most other financial institutions passed on only a small proportion of the interest rate cut to borrowers, after the Reserve Bank cut official rates by 0.25 per cent to 1.5 per cent on 2 August.
“The Government recognises that at all times and particularly in challenging economic times globally, it is important that Australians retain faith in our financial institutions and the decisions they are taking,” Mr Turnbull said.
A parliamentary vote on Labor’s plan could be embarrassing for the Government, with a number of Coalition MPs inclined to support it.
Mr Turnbull said: “The Australian economy depends critically on the performance and strength of our banking and financial system. Banks operate under a social licence and have responsibilities to the Australian public.
“As part of a broader terms of reference to be provided to the committee by the Treasurer, the committee will be asked to examine and report to the Parliament on the banking and financial system, calling Australia’s banks separately to appear before the committee.
- “This will provide the opportunity for banks to explain how they are responding to funding issues to support Australian consumers and businesses. In particular the banks will be required to explain:
- international economic and financial market developments and how these are affecting Australia
- developments in prudential regulation, including capital requirements, and how these are affecting the policies of Australian banks
- the costs of funds, impacts on margins and the basis for bank interest rate pricing decisions
- how individual banks and the banking industry as a whole is responding to issues previously raised in parliamentary inquiries through their package of reforms announced in April 2016
- bank perspectives on the performance of the Australian economy, including strengths and risks.
“The appearance by the banks will ensure they have the important opportunity to transparently account for their decision making and how they balance the needs of borrowers, savers, shareholders and the wider community.
“The Coalition Government has already taken significant steps to further strengthen our banking and financial system through the conduct of the Murray Financial System Inquiry and the ongoing implementation of the recommendations of this report.
“In addition, the Government has acted to strengthen the resources and capability of ASIC, which has not just the investigative and reporting powers of a royal commission but also the ability to prosecute and otherwise act against those responsible for malfeasance in the banking and financial sector.
“Furthermore, the banking sector has announced their own reforms to banking culture and practice designed to put their customers at the centre of their business.”
Labor leader Bill Shorten said, “why I say Mr Turnbull's response is a joke is that he said yesterday to the banks ‘I want you to pass this interest rate cut in full’. They've just ignored him. So today the best he can come up with is another Parliamentary inquiry? I mean the banks regularly present themselves to Parliamentary inquiries. It hasn't stopped the rip-offs and it hasn't stopped the scandals.”
He said, “There's a big difference (between Labor and the Government). Labor's now pushing for a Royal Commission. Mr Turnbull knows that if you want to get to the bottom of a matter, if you want to see how widespread problems are have a Royal Commission. I mean he was appropriately moved to act following an important ABC story about youth justice in the Northern Territory. He knows the best form of inquiry ultimately is a Royal Commission. Yet when it comes to banks he said before the election ‘ASIC can do the job’, now that they've humiliated him on not reducing the interest rates and passing it through, he's come up with this one day in a year visit to Canberra. He should just bite the bullet and listen to the people of Australia rather than the banks and have a Royal Commission.”